Education & Skills

Human capital: is this the new viral currency?

human-capital

What do you think when you consider the definition of the word ‘asset’? Whilst they come in many different forms – fixed, tangible, intangible – ultimately, an asset is an item of value.

Assets can be managed and measured. They can increase and decrease in value. They can be gained, they can be lost. However, when organisations consider their portfolio of assets, it’s only a few trailblazers that incorporate arguably the most defining competitive advantage for economic growth within this index: their people.

Key takeaways:

  • Leadership pioneers are promoting the understanding of labour as an asset and a competitive advantage fundamental to economic growth
  • Recognising and exploiting human capital simply requires two things: acknowledgement + action
  • The revolutionary requirement of human capital divulgence in some countries may just be the first step in how companies report their net-value globally

Why has it taken so long for the penny to drop on an employee’s value?

The priority of most businesses is to elevate people’s productivity through skills to maximise objectives, achieve economic growth and subsequent revenue results.

A primary component of productivity are employees and as we see a transitioned shift into a more insightful way of operating, leadership pioneers are promoting the understanding of people labour as an asset and a competitive advantage fundamental to economic growth – targeting conscious, concise people and skills development through training for collective growth and achievement.

Kearns (2005) defined human capital as “the collective value of the capabilities, knowledge, skills, life experiences, and motivation of an organizational workforce”. To truly exploit employees as an asset and develop them into ‘human capital’, innovative and developmental leadership that truly values the contribution of their people’s skills to collaborative success must be underpinned as a priority.

human-capital

The hesitance perhaps sits around ownership. Employees are not owned by the employer and any suggestion relating to such an inclination would – quite rightly – be met with uproar. It’s equated to a reserved corporate attitude around insinuation.

But as we transcend into a new era of asset control where the intangible is just as valued as the tangible, such as crypto and NFTs, we’re progressing into a time where it’s less about ownership and more about investment and returns.

Investopedia (2021) defined human capital as “renewable source of productivity”. Recognising human capital, employees, as a route of competitive advantage simply requires two things: acknowledgement + action. Organisations can cultivate their workforce by encompassing their approach to people practice through targeted training and skills development on their corporate agenda and measure how conscious investment of competencies can not only elevate culture, but achieve economic growth as well.

The opulence lies in recognising the opportunity within human capital

The way employees are being managed is changing. The utilisation of data metrics in people personnel is gathering incredible momentum. Insights are no longer just being drawn from balance sheets, but from the people’s portfolio.

Indicators of economic growth and corporate health are no longer just what – but who and how.

As with all underwriting, it’s conducive for organisations to see the reward in their people’s investment. Not only to measure, but to strategize and consider how approaches can be adapted to see that peak in the graph grow. Fundamental metrics include key performance indicators that drive productivity: engagement, skills, absenteeism, promotion rates, access to training and turnover alongside target attainment and deadline achievement. Organisations can draw return statistics to ensure the human capital investment decisions they make produce evidence-based returns and are reflective in their economic growth.

Data can be digested. It can be used to troubleshoot. It can be exploited. It can predict. Organisations worldwide encompass external analytics into their strategic force fields but for many, there is a huge source of available dividend sitting right at home in their employees, in the skills of their people

Whilst human capital remains intangible, there is room for positive manipulation for collaborative gain. Training, exposure, mentorship, education, skills development; these aren’t just opportunities that employees yearn for, they are primary competencies of a stakeholder model that employers must recognise in value to build an engaged workforce.

Let’s bring it back to short-term gains vs long-term value creation. Growing your portfolio of assets may incur an immediate cost, but smart investors know the magic lies within the patience of the journey for sustainable economic growth.

It goes beyond financial return; it builds a culture of ambassadors. People’s labour markets are more competitive than ever before, largely impacted by globalisation, availability of training and expedient increase in stakeholder capitalism. We no longer want to join a company; we want to be part of a purpose. Would you ever nominally select a lower interest rate? No. Would you choose ‘no return required’ on your stock portfolio? Exactly. So why would an organisation choose to not get maximum return on their people labour investment?

The power of the people

‘The power of the people’ movement originally began in response to oppression and an affluent hierarchical approach to societal domination. A lack of acknowledgement of people’s pivotal contribution to corporate economic growth will see a repeat of this revolution.

Take a moment to analyse the world and the path we as individuals and collectives face today…it is one of social justice. It’s one where opportunity is at the forefront. We’re part of a global generation of people that want to level the playing field for all. Organisations need to build a culture of contribution to sustain a commitment to their cause: make your team part of your targets.

The economic value lies ultimately within experience and skills but can further extend to training, education, intuition, innovation, health, engagement and loyalty. These are all indicators of productivity that are globally accepted to be directly correlated to profitability. This spans across the entire hierarchy as the success of efforts will be a representation of the leadership endorsement; the buy-in of the journey will then require the belief of the workforce that this is a culture shift, not a tick-box.

It will soon be breaking news to the boardroom agenda

As with many developed leadership approaches, the pessimists may dismiss this universal approach as visionary. But the writing is also creeping onto the legislative wall.

November 2020 saw the Securities Exchange Commission (SEC) in the US issue final rules modernizing requirements of Regulation S-K (applicable to the disclosure of business, Item 101). In summary, this is the reporting of human capital management and instating transparency around how this impacts economic growth. The specifications state that disclosure must be given of: “any human capital measures or objectives that the registrant focuses on in managing the business (such as, depending on the nature of the registrant’s business and workforce, measures or objectives that address the development, attraction and retention of personnel” (Harvard Education, 2020).

The report to date has seen the declaration of company culture, core values, diversity skills and inclusion initiatives, recruitment and retention practices, pay equity, engagement surveys, reward frameworks, training programmes, promotion rates – the scope is wide. These are likely practices that are prevalent in existing operations, but are you measuring their benefit?

This requirement of divulgence may just be the first step in the way in which companies report their economic growth and net value. It’s the first sign of a drastic change in the thinking of underpinning the primacy of human capital as a driver of business outcome. But it also showcases the way in which we work is changing.

This is an opportunity for organisations to leverage their tools to hand by acknowledging the value in their employees, their people. How will you use yours?

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